Funding for 35 unit apartment complex.

[Willie Taylor]

I am interested in buying a 35 unit apartment building. It is fully occupied and it is 400k. How would I get funding for this? 

[Braden Smith]

Hi @Willie Taylor. 400k for a 35 unit building sounds awfully low. That's only about 11.5k per door. What condition is the property in?

For a property with this many units you will need to speak to a commercial banker. The main thing they will be looking at is how much money the property takes in. They will want to make sure that the rental income can service the debt. This is the debt service coverage ratio.

Mathematically speaking, debt service coverage ratio is defined as:

DSCR = Net Operating Income (NOI) / Total Debt Service (annual mortgage payment)

In other words, DSCR is a mathematical expression of how many times the income will cover the principal and interest mortgage payment. A DSCR of 1.00 is the break-even point. Anything under 1.00 represents negative cash-flow.

A commercial loan will require a sizeable down payment of 20-30%, so be prepared for about 80k-120k that you will need in cash.

See here for more info:  https://www.biggerpockets.com/blog/2008/03/10/apartment-building-investments-debt-service-coverage-ratio/